Growing margin pressure could see 2018 record the highest M&A deal value for the investment management sector, according to a new report by Deloitte.
Deloitte’s 2018 Investment Management Outlook outlined a number of key challenges in the year ahead for professional money managers.
Fund managers will have to adapt to changing customer preferences, which (with the emergence of Millennials) could experience a “quantum shift” as opposed to the incremental changes the industry has seen in the past decade, said Deloitte.
In addition, with investors favouring low-cost strategies at present, the onus will be on fund managers to “make the case” for alpha and active management in general, said the report.
“The average investment management firm will likely be less profitable and have roughly the same assets under management (AUM) at the end of 2018 as in the beginning, even in a continuing bull market,” predicted Deloitte.
With that in mind, inorganic growth (ie, growth through mergers and acquisitions) could be a very compelling proposition for firms in 2018, said the report.
“Investment managers also require new skills to stand out amongst the competition. Mergers and acquisitions (M&As) often provide the ability to acquire these
new skills and capabilities quickly,” said Deloitte.
“The average transaction size has jumped as well, with 2017 witnessing a few big-ticket transactions. The £11 billion merger between Standard Life and Aberdeen Asset Management to create Europe’s second biggest investment manager is a prime example of this trend.”
Firms are also likely to take advantage of artificial intelligence (AI) in an attempt to drive higher alpha and more organic growth, said Deloitte.
“With the exponential rise in data availability, and continued processing power increases, 70 percent of new hedge fund launches globally in 2018 will likely include investment processes that are supported by computer models, including AI and machine learning algorithms, as compared with 47 percent in 2015,” said the report.
